UPDATE 3-U.S. to consider expanding Medicare drug price negotiation

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By Yasmeen Abutaleb and Michael Erman

WASHINGTON/NEW YORK, May 14 (Reuters) - The Trump administration is considering expanding Medicare's ability to negotiate the cost of drugs by giving private payers a role in setting the price of medicines administered in hospitals and doctors' offices, Health and Human Services Secretary Alex Azar said on Monday.

Azar's comments provided more details on the plan to lower prescription drug costs for Americans announced on Friday by President Donald Trump.

While Trump assailed "middlemen," an apparent reference to health insurers and pharmacy benefit managers (PBMs), for pocketing negotiated rebates on drugs rather than passing savings to consumers, the proposal discussed on Monday appears to see them as part of the solution to high prices.

"On the one hand we are talking about banning rebates, but on the other we are talking about how great the private market is at controlling costs," said Craig Garthwaite, director of the healthcare program at Northwestern University's Kellogg School of Management. "Where exactly do we think those price reductions come from?"

Trump has vowed to tackle rising drug prices since running for office, but his plan spared the pharmaceutical industry from direct government negotiations to control costs, a proposal he endorsed during the 2016 presidential campaign. Shares of drugmakers rose for a second day on Monday as Wall Street analysts said the new policies were unlikely to hurt industry profits.

Medicare is the national health insurance plan run by the federal government for Americans over the age of 65 and the disabled.

Azar, a former pharmaceutical company executive, said Trump views tougher negotiation as key to the plan. Azar said his agency will consider an alternative system for buying Medicare Part B drugs, which are administered by a healthcare provider and covered directly by the government, such as many cancer treatments and infused biotech drugs.

The administration would seek to allow private payers to negotiate the price of those medicines, as health insurers and PBMs already do in Medicare Part D, which covers drugs patients get at the pharmacy.

"We believe there are more private sector entities equipped to negotiate these better deals in Part B, and we want to let them do it," Azar said. "More broadly, the President has called for me to merge Medicare Part B drug payments into Part D, where negotiation has been so successful."

Health and Human Services senior officials said at a briefing with reporters on Monday that they could experiment with moving some drugs from Medicare Part B to Part D in a pilot program, but did not say when that might begin.

HHS likely has authority to pilot or experiment with limited programs, health policy experts said. But Joe Antos, of the conservative American Enterprise Institute, said the bulk of expensive drugs will likely remain in Part B, limiting the proposal's ability to significantly lower drug prices.

"These are sophisticated drugs for complicated diseases," Antos said. "It's a relatively small part of the Medicare population, but it's a big chunk of spending."

Under the current system, drugmakers and physicians are incentivized to keep prices high in Medicare Part B, Leerink analyst Ana Gupte said.

She said companies best positioned to participate in the new proposal would be insurers that have their own PBMs, Part D plans and Medicare Advantage business, such as UnitedHealth Group, Humana, Anthem Inc and Cigna if the Trump administration approves its merger with Express Scripts.

Reporting by Yasmeen Abutaleb in Washington and Michael Erman
in New York; Editing by Michele Gershberg, Dan Grebler and Bill
Berkrot